| Surviving
the Treadmill
By Steve Klinkerman
The pressures for rapid growth
are tremendous, but so too are the risks.
Are performance pressures getting out
of hand? In late 2000, a study by BAI and Xchange Inc.
found that an "alarming" proportion of front-line
employees and managers in banking say their companies
push them to sell beyond customers' needs. Reinforcing
that conclusion, a completely different study released
this spring by Schneider Sales Management and the University
of Colorado stated, "approximately half of sales
personnel in large financial service organizations believe
that they are encouraged to 'push' products that clients
don't need to meet sales quotas."
A lot of factors go into this, but one
of the root problems seems to be unrealistic expectations
for growth. Somehow, financial service executives have
been placed in the position of trying to expand their
institutions faster than the economies they serve —
and do so indefinitely. Everyone wants to out-perform
the market, but aggressive growth does introduce a variety
of risks.
Credit risk would rank at the top of
any lender's list. During the Texas banking and thrift
crisis of the late '80s, for example, regulators routinely
blamed failures on rapid loan growth. Other types of operating
risk include breakneck merger consolidations and shoot-from-the-hip
technology ventures, both of which have proved fatal for
careers and even whole companies in recent years. The
common theme in all these situations was that change occurred
too fast for the company to absorb on a day-to-day basis.
Relationship risk is another drawback
of hyper-growth. In calmer moments, we realize how hard
we've fought just to put current businesses in place,
and how important it is to nurture our best relationships.
Then the growth gremlin strikes. Management attention
and organizational resources are strained to the breaking
point. Established businesses and relationships suffer,
as do new ventures. Customers are disappointed all around.
So how can senior managers stay grounded
as they tackle the growth challenge? One key is to stand
for something other than dollars and cents — something
distinctive that connects with customers. There are lots
of interesting ways to focus organizational energies,
including excellence in products, distribution and service,
an emphasis on certain psycho-demographic segments, and
so on. But you can't race down each and every avenue.
A skillful strategist is a selective one.
Staying in touch matters as well. The
Holy Grail in financial services is organic growth, or
expansion that is achieved without having to resort to
acquisitions. This requires an excellent interplay among
employees and customers. Once managers become senior executives,
however, they tend to become isolated from the very customers
and employees whose cooperation and support they need
to achieve their most important goals. This is a powerful
tendency that must be steadily resisted.
It's also important to control excessive
optimism and outsized expectations. A BAI/First Manhattan
study published last year showed how bankers' internal
growth projections often sharply exceed those of the analysts
who cover their institutions.
Within this context, perhaps organizational
stress fractures — such as reports about pressures
to sell beyond customer needs — can serve as an early
warning system that things are moving too fast. Merrill
Lynch & Co.'s recent $100 million fine over its sales
practices is reason enough for everyone else to stay watchful.
Mr. Klinkerman
is editor-in-chief of Banking
Strategies.
Copyright © 2003 by Banking
Strategies, published by BAI.
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